Month: September 2001

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New York has to rebuild, and that will cost billions

After virtually any disaster, natural or man-made, there must be rebuilding, and the attacks on New York and Washington are no exception. That’s not to say the World Trade Center has to be rebuilt, but the brokerage firms and banks and insurance companies that inhabited it have to somehow get back to work. In addition to the horrific human loss that has been suffered, those businesses have to replace the nuts and bolts of their operations, and that means buying everything from computers to phone networks.

According to Tower Group, a New York-based consulting firm that specializes in studying technology in the financial services industry, at least $3.2-billion (U.S.) will have to be spent by securities firms alone to replace the systems they lost when the World Trade Center towers collapsed. The firm expects $1.7-billion to be spent on hardware (including trading stations, sales stations, workstations, PCs, servers, printers, storage devices, cabling, hubs, routers and switches) and another $1.5-billion on consulting services and software to install and connect all the new hardware.

According to the New York Times, one securities firm ordered 200 PCs from Dell Computer within hours of the planes hitting the World Trade Center – and that was just the first in a rush of replacement orders. Dell said it had to step up production at its plant in Austin, Texas and has been more or less operating its plants at peak capacity around the clock. The company said it had sold more than 24,000 servers, laptops and desktop computers as of Monday and had turned three 18-wheelers into mobile support facilities. One law firm sent its own truck to Austin to pick up 400 computers.

Tower Group said in its report that it believes 30,000 securities positions (including trading, sales, research and operations) were destroyed in the two World Trade Center towers – and that as many as 15,000 to 20,000 positions will need to be replaced in nearby buildings, including the World Financial Center and Bankers Trust buildings. That includes 16,000 trading desks (including multiple workstations with multiple flat-screen displays) worth $52,000 each, 34,000 PC workstations at $5,000, about 8,000 Intel servers and 5,000 UNIX servers at a cost of about $370-million.

And those figures are just for the securities industry. Similar numbers will likely apply to the law firms, insurance companies and others that were located in the towers, although they most likely would not have five flat-screen computer displays on every desk the way a securities dealer would. And that’s just the computer equipment that has to be replaced – then there are the phone and data networks that have been destroyed or seriously damaged, not to mention the impact on the commercial real estate market in New York as a result of the collapse of the two immense office towers.

By some estimates, as much as 15 million square feet of office space has been either obliterated or damaged – equal to about 15 Empire State buildings, or all the office space in downtown Atlanta or Miami – in addition to more than 75,000 phone lines and over 20,000 miles of telephone and data cables. According to one report, tens of millions of dollars in phone switches are buried, and steel girders severely damaged one of the switching facilities for Verizon’s network. “We have a giant job cutting out the pieces that don’t work and reattaching the parts that do,” Hugh O’Kane, CEO of telecom consulting firm Levent Management, told Fortune magazine.

Obviously, some of the firms who have lost entire networks – both phone and data – will take the opportunity to upgrade to faster or more secure (or redundant) systems, rather than just duplicating what they had before. And that might mean a considerable amount of unexpected business for companies such as Cisco Systems, Nortel Networks and other networking equipment makers. Focusing on the sales of office equipment after such a terrible event no doubt seems cruel and insensitive, but eventually the world must return to normalcy, and helping companies recover is part of that.

There’s no question that the spending on computers and networking gear will provide tens of billions of dollars that those industries were not expecting to get. But will it be just a short-term blip? Perhaps. On the other hand, it might help PC makers such as Dell and networking equipment companies such as Cisco get through the next couple of quarters, until those industries and the economy itself begin to return to something approaching normal behaviour (assuming that ever happens, of course).

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Avoid the urge to sell everything – or buy everything

On the front cover of The Hitch Hiker’s Guide to the Galaxy, the traveller’s manual in Douglas Adams’ popular novel of the same name, was a simple piece of advice: “Don’t Panic.” This also happens to be good advice if you are an investor – and not just now, in the aftermath of the attacks on the United States, but at almost any time. In fact, many investors should probably have heeded that advice in 1999, when the market was deep in the throes of a buying panic. And it is just as timely now, when the impulse may be to sell just about everything you own and head for the hills.

If you were to sell everything, you would certainly have plenty of company: Despite all the talk about investors holding fast – or even buying stocks – to show their resolve in the face of terrorism and so on, the Dow Jones industrial average and the Nasdaq stock index both went into free-fall when trading opened on Monday, with the Dow dropping by almost 600 points or more than 6 per cent, and the Nasdaq off by about 6 per cent as well, or over 100 points. After an attempt at a rebound of sorts both indexes started to head south again, hitting lows not seen since the latter part of 1998. Tuesday brought a brief respite, but then the selling intensified again on Wednesday.

So should you join the stampede? Not unless you enjoy throwing good money after bad. The fact is that rash decisions are rarely wise decisions – unless you want to rely on the chance that you might accidentally make the right choice, which probably isn’t the kind of attitude you want to take when dealing with your portfolio. If that is the approach you want to take, then you might as well head down to Las Vegas and put some money on your favourite number, or throw a handful of darts at the stock pages. Throwing all your stocks out the window because of an all-consuming fear of a global meltdown sparked by last week’s events falls into the same category.

Not panicking also covers some of the behaviour that investors might feel compelled to take, apart from selling everything – such as the desire to buy stocks indiscriminately, as a gesture of patriotism or solidarity with the United States, as some financial advisors and columnists were recommending late last week. That may seem like a nice gesture to make, but it isn’t likely to help you or even the economy as a whole.

Holding tight to every stock you own is also not the wisest course, since there are stocks in certain sectors that arguably should be sold – shares in some airlines, for example, whose financial future might be in doubt as a result of a sharp drop in international and business traffic; or shares in certain large insurance companies who might find themselves on the hook for tens of billions of dollars in claims; or some hospitality stocks, on the assumption that travel might suffer.

Conversely, of course, the contrary impulse – to buy some of everything, since this must be an enormous buying opportunity if you were at all bullish before the attacks occurred – would also likely be an over-reaction. As difficult as it may be, investors should do what they (at least theoretically) attempt to do at other times, when there are no disasters and war is not looming large on the horizon, and that is to take a little time and think about what is happening and what it might mean for their portfolio, before coming to any conclusions about which stocks to buy or which to sell.

Warren Buffett, the legendary value investor known as the Sage of Omaha, told the TV show 60 Minutes on the weekend that he wasn’t planning to sell anything, and that depending on how much certain sectors fell on Monday, he might start looking at buying a few stocks. That may be boring and uninspiring, unlike the call to “Buy a stock for America!” that some market watchers have been promoting, but boring is how Mr. Buffett came to be worth $30-billion(U.S.) or so. It doesn’t make for great headlines, of course, but it helps to avoid a lot of the ups and downs of the day-trading crowd.

A survey of past catastrophic events and their effect on the stock market proves the point even better: According to data crunchers such as the folks at Markethistory.com, in virtually every case going back to the turn of the century, a disaster or war event of some kind has caused benchmarks such as the Dow and the S&P 500 index to slide by anywhere from 5 to 12 per cent – but in six months to a year, those indexes were higher than they had been, having made up all the ground they lost and then some. That goes for the bombing of the World Trade Center in 1993, the invasion of Kuwait in 1990, Pearl Harbor and the sinking of the Lusitania in 1915.

In other words, there are plenty of reasons for buying and selling stocks in the wake of the attacks in the United States – but some of them, however well-meaning they might be, are unsound.

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Who is Osama bin Laden?

(Note: This was originally published at the Globe and Mail)

By now, everyone who has been following the attacks on the World Trade Center and the Pentagon has probably heard the name Osama bin Laden. President George W. Bush has said that he is a prime suspect in the terrorist attacks, just as he was a prime suspect in the bombing of the World Trade Center in 1993 and in dozens of other terrorist attacks on U.S. embassies, ships and other assets. Some viewers may even have seen Mr. bin Laden on television, a wiry man with a long beard, dressed in traditional Muslim robes, speaking into a microphone or walking out of a tent in the mountains surrounded by men carrying semi-automatic rifles. But just who is Osama bin Laden?

As far as anyone can tell, Osama (or Ussamah) bin Mohammed bin Awad bin Laden was born in Saudi Arabia in 1957 to a prominent businessman from Yemen and his fourth wife. Mr. bin Laden has 22 half-brothers who control various branches of the family empire (the Syrian group, the Lebanese group, the Egyptian group, the Jordanian group, and so on) – a conglomerate that does business throughout the Middle East and is worth about $5-billion (U.S.). Mr. bin Laden’s father Mohammed was a close friend of Saudi King Abdul Aziz, and made his early fortune by being granted an exclusive contract to build all the religious structures in the holy cities of Mecca and Medina, and until 1967 in the city of Jerusalem as well. From this Mr. bin Laden expanded into road construction, farming, telecommunications, petrochemicals and a range of other businesses.

According to one account, the bin Laden sons went to the same schools as the various children of King Abdul Aziz – as well as other Middle Eastern luminaries such as King Hussein of Jordan, the Kashoggi brothers (whose father was one of the king’s doctors) and actor Omar Sharif. Like his half-brothers, Osama bin Laden worked for awhile for his father’s company, and reportedly had a reputation as a bit of a party boy who liked to stay out late and drink in Jeddah, the political hub of Saudi Arabia.

Those party days came to an end, however, when the Soviet Union invaded Afghanistan in 1979, and a large number of Saudi men went to support their Muslim neighbours. Osama bin Laden used his family’s money and construction equipment to dig tunnels and trenches in the mountains and to create a network of training camps and rebel bases. Like most of the “mujahideen” rebel groups, he was financed and trained in part by the U.S. government, which spent $6-billion or so trying to defeat the Soviets.

After the Soviet troops finally pulled out of Afghanistan, Mr. bin Laden went back to Saudi Arabia and continued building roads and other projects – but he would say later that his commitment to a radical and violent interpretation of Islam, to the idea of a holy war, started in Afghanistan. Even though he and his mujahideen fighters were working with (or for) the U.S. to repel the Soviets, Mr. bin Laden and others saw the U.S. as equally oppressive to Muslim peoples in the Middle East, and as soon as the Russian threat was gone, Mr. bin Laden turned his attention to the U.S. “crusaders,” who he blamed for helping Israel oppress the Muslims in Palestine and for corrupting the royal government of his home country of Saudi Arabia.

Through the 1980s, Mr. bin Laden continued working in construction, on projects that included an 800 kilometre road from Port Sudan to Khartoum in Sudan – a war-torn country controlled by a radical Islamic military regime. The bin Laden group also reportedly built a number of oil pipelines, which are now being used to transport oil from a field in the southern region of the country, a project that is partially owned by Talisman Energy of Calgary. Mr. bin Laden later moved to Sudan, and continued building his business empire, moving into agriculture and even pharmaceutical production.

Sudanese leader Omar el-Bashir has maintained that Mr. bin Laden was an ordinary businessman while he was in Sudan, helping to build roads and schools, but U.S. and international authorities became convinced he was engaged in financing terrorism and training Muslim terrorists. In 1998, in retaliation for attacks on two U.S. embassies, the U.S. destroyed what it said was a chemical weapons factory controlled by Mr. bin Laden – a plant Mr. bin Laden said was a pharmaceutical manufacturing facility.

Although he was known to the U.S. government already, his first real appearance on the international scene was when he granted an interview to British journalist Robert Fisk of The Independent in 1993. At the time, he was building the Port Sudan road, using the same bulldozers he had used to build a network of guerrilla trails in Afghanistan – but already, some of his fellow mujahideen had gone to fight in Bosnia and Mr. bin Laden was suspected of helping to finance that battle between Christian Serbs and Muslim Croats. In 1993, the World Trade Center was bombed, and the world started to become familiar with the name Osama bin Laden.

The following year, the rest of Mr. bin Laden’s family distanced themselves from their half-brother: Bakr Mohammed bin Laden, the leader of the family group, expressed the family’s “regret, denunciation and condemnation of all acts that Osama bin Laden may have committed” (one of Mr. bin Laden’s uncles denounced him again this week in comments to Associated Press, and sent the family’s condolences to the victims in the U.S.). The U.S., meanwhile, was putting pressure on the Sudanese government to distance itself from Mr. bin Laden and his ilk, and finally the country pressured Mr. bin Laden to leave. He decided to return to Afghanistan, where he helped the radical Islamic group known as the Taliban to take control of the country, and in return was offered the protection of the government.

From most reports, Mr. bin Laden has helped to set up a network of training camps and supply depots in the hills of Afghanistan, and moves from camp to camp at random to avoid potential attacks. He has a heavily fortified family compound in Kandahar, but rarely spends much time there – preferring to stay in a network of caves and tents in the hills, guarded by a group of devoted followers including his 16-year-old son Mohammed. He reportedly has satellite phones in the caves, which he uses to keep in touch with various radical Muslim groups, as well as other electronic equipment including fax machines and computers that are powered by electric generators. Mr. bin Laden’s group is known in Arabic as al-Qaeda, or “the base.”

The United States has tried to pressure the Taliban to hand over Mr. bin Laden, but they have refused, denying that he is involved with any terrorism. Several sources have reported that two years ago, his daughter (he has 20 children from four marriages) married Mullah Mohammed Omar, the leader of the Taliban – and at the same time, Mr. bin Laden married the daughter of a highly-ranked leader in the Taliban government, the two marriages further cementing his ties with the ruling party in Afghanistan. Some foreign security experts believe that such ties make it unlikely that the Taliban will hand over Mr. bin Laden, no matter how much the U.S. threatens.

In a series of interviews he has given, including one with ABC News reporter John Miller in 1998, as well as in public statements – such as the death sentence or “fatwah” he issued in 1998 against the U.S. – Osama bin Laden has made it clear that he believes that virtually any action taken against any American, civilian or military, is justified by his holy war. He said “We do not have to differentiate between military or civilian. As far as we are concerned, they are all targets, and this is what the fatwah says . . . . The fatwah is general (comprehensive) and it includes all those who participate in, or help the Jewish occupiers in killing Muslims.”

In the 1998 fatwah, Mr. bin Laden says that: “We – with God’s help – call on every Muslim who believes in God and wishes to be rewarded to comply with God’s order to kill the Americans and plunder their money wherever and whenever they find it. We also call on Muslim ulema, leaders, youths, and soldiers to launch the raid on Satan’s U.S. troops and the devil’s supporters allying with them, and to displace those who are behind them so that they may learn a lesson. . . . The ruling to kill the Americans and their allies – civilians and military – is an individual duty for every Muslim who can do it in any country in which it is possible to do it.”

Asked by an interviewer if he is a terrorist, Mr. bin Laden says “Terrorism can be commendable and it can be reprehensible . . . terrorizing oppressors and criminals and thieves and robbers is necessary for the safety of people and for the protection of their property. There is no doubt in this. Every state and every civilization and culture has to resort to terrorism under certain circumstances for the purpose of abolishing tyranny and corruption.” The terrorism his group practices “is of the commendable kind for it is directed at the tyrants and the aggressors and the enemies of Allah . . . terrorizing those and punishing them are necessary measures.”

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Hatred of the United States is rooted in oil

Although the pieces of the puzzle haven’t all been put together yet, the early signs are that those responsible for the attacks in the U.S. are associated with militant Islamic leader Osama bin Laden. And what could possibly have sparked those horrific attacks? As with so many other aspects of U.S. foreign policy, much of the hatred that emanates from militant Islamic terrorist groups such as Mr. bin Laden’s can be traced back to a single thing: Oil – and more specifically, the U.S. government’s desire to maintain control over the vast quantities that exist in the Middle East.

Mr. bin Laden, a Saudi-born businessman who left the construction business to become a financier of international Islamic terrorism, is only the latest in a series of Middle Eastern figures who have become public enemy number one as a result of U.S. oil policy. Until Mr. bin Laden came along, for example, the most hated man in the Middle East was Saddam Hussein, the leader of Iraq – who some military intelligence observers feel may be involved in assisting Mr. bin Laden with the war of terrorism against the U.S. Many political analysts believe that the war against Iraq was fought largely to ensure that the oil would continue to flow from Saudi Arabia.

During the Gulf War, the U.S. stationed troops in Saudi Arabia at the request of the Saudi royal family – a move that Mr. bin Laden and other Islamic groups have said was an affront to Muslims, and one which many security experts warned against at the time, arguing that it would increase tension in the Middle East. “A lot of people advised [President George W.]Bush’s father not to put U.S. troops in Saudi Arabia – to put them ‘over the horizon’ rather than in the heartland of Islam,” said U.S. policy expert John Sigler, a professor of political science at Carleton University.

While the State Department argued that the troops should be located in some other area, Prof. Sigler said, the Pentagon decided that they needed to be on the ground in Saudi Arabia for reasons of “military efficiency.” Even after the Iraqi threat had eased, U.S. soldiers remained in what Mr. bin Laden’s group refers to as “the land of the two holy places” (Mecca and Medina). American officials said the troops needed to remain because they would protect the Saudi Arabian government of King Fahd from Iraqi attack – but Prof. Sigler said this was largely a fiction, presumably designed to justify keeping troops to protect Saudi oilfields.

Not only does the presence of non-Muslim soldiers inflame the religious passions of fundamentalist Islamic groups such as Mr. bin Laden’s, but their existence is also a regular reminder that the U.S. is primarily interested in the Middle East because of its oil supplies. Much of Mr. bin Laden’s anti-U.S. rhetoric – expressed in several rare interviews with Western reporters over the past few years – concerns the alleged “rape” and “plundering” of the Middle East by the United States, aimed at controlling the area’s oil for the benefit of the U.S. and other Western nations.

This idea is intricately intertwined with America’s policy on Israel. Some Muslim groups believe that the U.S. is in league with Israel to take control of the Middle East – driven, they argue, by Israel’s desire to crush all Islamic nations, combined with the American desire to control the source of the vast majority of the world’s oil. Within Saudi Arabia, meanwhile, many critics of the monarchy see the U.S. as supporting a “puppet” government for its own purposes, in the same way it did in Iran.

The problem for the U.S. is that anything it does to try and influence the flow or supply of oil involves a large part of the Middle East, and impacts on nations that have an abiding hatred for the U.S. – including Iraq, Iran and Libya. And despite sources of oil such as Alberta’s tar sands, some forecasters expect the U.S. and the rest of the Western world are going to need even more supply from the Middle East in the future: A study by the Center for Strategic and International Studies said the world will become increasingly dependent on the Middle East over the next 20 years.

The study said that oil-rich Persian Gulf nations will have to expand their oil production by almost 80 per cent over the next 20 years in order to keep up with demand, particularly demand from China and India. The potential for terrorism, supply interruptions and outright war will remain high, the study says – adding that getting more oil from Iraq will be “crucial” to meeting the world’s demands, since Iraq contains 11 per cent of the world’s oil reserves, second only to Saudi Arabia’s 25 per cent.

As long as the U.S. continues its growing demand for oil, in other words, it will be forced to deal with the troubled politics of the Middle East in one way or another, whether it wants to or not.

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How can you fight an enemy you can’t see?

(Note: This was originally published on the Globe and Mail website)

In the wake of one of the most horrific terrorist attacks on the United States in recent memory – perhaps even in history – one of the obvious questions is: Who is responsible? And what kind of action will the U.S. government take, or should it take, if and when it finds out? President George W. Bush has made it clear what he wants to do: He said in a statement that he intends to “hunt down and punish those responsible for these cowardly acts.” But how will the United States go about doing that? That is even harder to answer.

International security expert Ian Lesser of Washington-based RAND Corp. said the attack has all the earmarks of what is often called the “new” terrorism – including “the high lethality, the symbolism of the targets, the suicide of the attackers involved” and the fact that “no group has taken credit or claimed responsibility.” The problem with such attacks, Mr. Lesser said, is that it is often difficult to figure out how to retaliate, or even who exactly the government should be retaliating against.

In the past, Mr. Lesser said, terrorism was primarily conducted by organized groups such as the Red Brigade or the Irish Republican Army, whose primary aim was “the liberation of Group X or the freedom or interests of a particular country or group.” They tended to take credit “because they wanted to call attention to their cause,” said Mr. Lesser, “but modern groups have systemic, often religious agendas, and as far as they’re concerned the act itself is enough – and they may see themselves as answerable only to God,” which helps explain why they often involve suicides.

Security experts say the first target of suspicion in such a well-organized attack against the United States is Osama bin Laden, a Saudi exile and prominent supporter of Islamic terrorism who has been implicated in dozens of attacks on U.S. institutions – including a previous attack on the World Trade Center in 1993. Living in Afghanistan, where he has been protected by the fundamentalist Taliban government, Mr. bin Laden reportedly warned several weeks ago that he was preparing some kind of major strike.

John Sigler, an adjunct professor of political science at Carleton University and a specialist in American foreign policy and Middle Eastern affairs, said a warning has been circulating in intelligence circles that Mr. bin Laden was planning an attack – but the assumption was the attack would likely take place in the Middle East, not inside the United States itself. “They’ve been warning for 30 days about a suspected Osama bin Laden attack in the Middle East, and U.S. forces have been on high alert… but nobody had envisaged this kind of multiple hijacking attack” on U.S. targets.

Prof. Sigler said that the attack on the twin towers of the World Trade Centre and the Pentagon was “extremely sophisticated” and that within the international terrorism community “most of us can’t put the finger on anyone but Osama bin Laden.” There were early reports that an Arab group, the Democratic Front for the Liberation of Palestine, had claimed responsibility, but Prof. Sigler said such an idea was “laughable.” Osama bin Laden’s group is one of the only groups that could put together such a well co-ordinated plan to attack several targets at once, Prof. Sigler said.

Several observers have pointed out that in the wake of the attack on the Federal building in Oklahoma, many terrorism experts also pointed the finger at Osama bin Laden, but bomber Timothy McVeigh turned out to be a decorated U.S. Special Forces veteran associated with the anti-government U.S. “militia” movement. Prof. Sigler said militia groups might have the ability to mount such an attack “because many of them have a Special Forces and intelligence background,” but he still thought it was more likely to be Osama bin Laden. “I can see militia attacking the Pentagon and the State Department, but the World Trade Center isn’t a government centre.”

And why does Osama bin Laden hate the United States with such intensity? Prof. Sigler said the Islamic fundamentalist “doesn’t hate America at all – he hates a specific American policy, which is the presence of U.S. troops in Saudi Arabia.” Troops have been stationed on bases in Saudi Arabia since the 1991 Persian Gulf war, Prof. Sigler said, despite repeated warnings from security experts that this policy would create even more tension with fundamentalist groups. “A lot of people advised [President]Bush’s father not to put troops in Saudi Arabia,” Prof. Sigler said, because groups such as Mr. bin Laden’s oppose having non-Muslim troops guarding Islamic holy sites.

When it comes to retaliation, the RAND Corp.’s Mr. Lesser said, the problem for the U.S. government is that the new terrorism involves such a diverse network of groups and often even individuals, as opposed to the kind of state-sponsored terrorism that the United States has been used to in the past. One of the problems with rushing to pin the blame on Osama bin Laden, he said, is defining “who is part of bin Laden’s group? Is it the people standing with him in the cave in Afghanistan? The group of people running things in Saudi Arabia or elsewhere? People who share his aims? Or people who took him as inspiration?” It makes retaliation “a very complicated equation,” Mr. Lesser said.

Mr. Bush and some of his advisers, such as Vice-President and notorious hawk Dick Cheney, may see the appalling attacks on the United States as a declaration of war – but with whom? And how do you fight an enemy you can’t put your hands on? That is the dilemma that confronts the U.S. now.